This archive report was first published on 30 October 2019.
Published on October 30, 2019, a critical issue has been brewing in the financial sector of Kenya. Credit reference bureaus (CRBs) are holding onto outdated data on the credit status of borrowers, which is not in real-time.
This has led to incorrect or outdated data being the source of friction between borrowers and financial institutions, leaving the former at the mercy of rogue CRBs. In some cases, data has not been updated for over five years!
As a result, cleared loans and settled arrears continue to wrongly reflect at CRB as overdue, outstanding or unpaid, adversely affecting those seeking credit from banks.
The level of regulation of CRBs is also being questioned, with some accused of abusing their role by reporting inaccurate credit status of borrowers or listing them against trivial balances below Sh20,000.
CRBs are also accused of turning mobile credit status enquiries into a moneymaking scheme, yet they charge banks for it.
The borrowing cycle is dynamic, and a bad debtor today may transform themselves into good payers tomorrow, especially where default was occasioned by external factors such as a depressed economy or delayed payments by county or national governments.
It is habitual defaulters who contribute to banks' distress, and some amass wealth by abusing the financial system, borrowing with the intent to not repay the loan or taking out loans that are beyond their ability to pay back.
Banks are also at fault for recklessly dishing out loans to people in dire straits, making a bad situation worse.
CBK should demand that data held in CRBs' archives is 30-60 days old or newer to avoid disenfranchising borrowers.
Banks should create a centralized and secure data warehouse hosted by CBK or their association that CRB can accessed in real time.
CBK should order that defaulters owing below Sh20,000 or are aged under 21 years be expunged from the CRB blacklist database since banks hold general provisions of between 2-5 per cent for contingent small defaults.
CBK must also audit the security system of CRB data as the stiff competition in the financial sector may give rise to manipulation or hacking of the confidential information.
